ATA Creativity Global
Q2 2017 Earnings Call Transcript

Published: 11 Aug 2017

[Operator:]

Good day, ladies and gentlemen, and welcome to ATA Inc. Financial Results Conference Call for the Three Months Ended June 30, 2017. My name is Carla and I'll be your operator for today. At this time, all participants are in listen-only-mode. Later we will conduct a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to your host for today Carolyne Sohn of Equity Group. Please proceed.

[Carolyne Sohn:]

Thank you, operator, and hello everyone. Thank you for joining us. The press release announcing ATA's results for the three months ended June 30, 2017 are available at the IR section of the Company's website at www.atai.net.cn. As part of this conference call, the Company has been accompanying a slide presentation available on its website. In addition, a replay of this broadcast will be made available at ATA’s website for the next 90 days. Before we get started, I would like to remind everyone that this conference call and any accompanying information discussed herein contains certain forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Although, the Company believes that the expectations reflected in its forward-looking statements are reasonable as of today, those statements are subject to risks and uncertainties that could cause the actual results to differ dramatically from those projected. There can be no assurance that those expectations will prove to be correct. Information about the risks associated with investing in ATA is included in its filings with the Securities and Exchange Commission, which we encourage you to review before making an investment decision. The Company does not assume any obligations to update any forward-looking statements as a result of new information, future events, changes in market conditions, or otherwise, except as required by law. Regarding the disclaimer language, I would also like to refer you to the slide two of the conference call presentation for further information. All U.S. dollar amounts in this conference call relating to the financial results for the three months ended June 30, 2017, are converted from RMB using an exchange rate of RMB6.7793 to US$1 the noon buying rate as of June 30, 2017. All historical conversions are accurate as of the time reported unless otherwise noted. The Company reports its financial results under U.S. GAAP and RMB, and all percentages calculated in the presentation are based on RMB unless otherwise noted. For those of you following along with the accompanying PowerPoint presentation, there is an overview of the Company on Slide 3. As previously disclosed on the Company's Form 6-K filing with the SEC on June 2, 2017, ATA will be changing its fiscal year end from March 31st to December 31st. The Company will file the transition report on Form 20-F after December 31, 2017 to account for the transition period from April 1, 2017 to December 31, 2017 and will continue to report financial results on a quarterly basis during this transition period. On today's call, the Company's Chairman and CEO, Mr. Kevin Ma will start by providing some thoughts on the current education market in China. Ms. Amy Tung will then provide an overview of our operational and financial highlights for the three months period ended June 30th. Kevin will follow with the brief discussion on ATA's outlook and growth strategy for the remaining six month of the 2017 calendar year before opening the floor for questions. With that, I'll turn the call over to ATA's Chairman and CEO Mr. Kevin Ma to provide some thoughts on the current education market in China. Please go ahead, Kevin.

[Kevin Ma:]

Thank you, Carolyne, and welcome everyone. ATA's mission that is founding the early 20 years ago has been to help students, jobseekers, working professionals and people from all works of life in China pursue and achieve their education and professional goals. Over the past year, China's education system has seen much change due to the policy reform. The shift and intention of China's current examination system is one area of focus for such reform. The Minister of Education has stated that learning recur thorough accurate and effective assessment throughout the learning process. It cannot be judged surely based on test scores. Stakeholders in China’s education market including parents, teachers and schools tend to be opened to the instruction of more testing products and services to promote adoptive learning as students grow and develop. There has been an ongoing effort to inspirit education, technologies into all levels of education and off school tutorial offerings as a leading provider of large scale computer-based testing services in China. ATA is well positioned to take advantage of this variable market environment. In this regard, we’ve entered into a five-year partnership with Tsinghua University while offer most facilities to institutions for higher education in China. In the areas of content development and education research and doing so, we believe we can continue to strengthen ATA's portfolio of test tiles and view their foundation for business growth in the foreseeable future. We are excited about the prospects of this partnership and we look forward to being involved in the future of education and assessment reforms in China and beyond. I would now like to turn the call over Amy, who will go over operational and the financial highlights for June 30th period.

[Amy Tung:]

Thank you, Kevin, and hello everyone. Today, I will provide an overview of our operating and financial highlights and then briefly provide an update on our outlook for the remaining six months of nine months transition period and in December 31, 2017. We’ll begin in Slide 5. During the three months ended June 30, 2017, ATA delivered 3.6 million billable tests compared to $2.6 million in the prior year period. We continued to focus on growing our core traditional testing services business, and we’re pleased to have successfully delivered two new exam titles for the Ministry of Human Resources and Social Security. We delivered anatomy of exam at junior level Accountant Professional and Technical Qualification exam in the city of Nanchang, the capital of Jiangxi province, marking the first staff towards ATA becoming one of the providers of the nationwide accounting qualification exam, which is cited as a requirement for most commonly recruiting in China. These new exams are contributed to the revenue increase during period. As Kevin mentioned, we began working with Tsinghua earlier this year. ATA has committed to support the establishment of the Research Institute of Future Education and Assessment at Tsinghua University. This institute was founded with ATA’s initial financial contribution in April and aims to become a first class research platform focused on truly best practices and assessments in this new era of education. ATA has agreed to make a financial contribution to this project each year. For the duration of the contract as we believe this partnership will allow us to continue strengthening our leadership position in China’s testing technologies market by enhancing our range of testing services over the long-term. During the June 30th period, we also signed an exclusive five-year agreement with ATA Inc. The organization is responsible for the well known coach entrance exam, that many of your have completed the ACT test. ATA will be the exclusive provider on a variety of ACT test preparation measures to student in China. We are working closely with the ACT team on ensuring seamless delivery of these products in the months to come. ATA business previously provided net revenue guidance range of between RMB91 million to RMB96 million for the quarter ended June 30, 2017, reported RMB104.1 million or $S16.3 million in net revenues. This was a 7.4% increase from the RMB96.8 million reportedi n the prior year period. Gross margin for the three months ended June 30, 2017 was 44.5% compared to 49.6% in the prior year period. The decrease was primarily due to a change in revenue mix as well as increased fixed cost associated with higher share-based compensation expense and licensing fees. Our bottom line for the three months ended June 30, 2017 was impacted by the increased cost I just mentioned as well as and RMB10 million expenditure related to the Tsinghua University academic project. We do expect the remaining two quarters will be within our expectations and our third one reiterating the net revenue guidance, as we previously provided for the nine months transition period ending December 31, 2017. On the next slide, we breakout revenues for the three months ended June 30, 2017 by our businesses which are testing services, online education services and other revenue. Testing services accounted for about 94.6% of revenues during the period. On Slide 8, we provide a breakdown of the Company’s financial results for the three months ended June 30, 2017. As this information has been fully detailed in our earnings release, I won’t repeat the numbers here but I’m happy to take any questions on this information during Q&A. Net loss attributable to ATA Inc. for the quarter ended June 30, 2017 was RMB8.5 million compared to net income attributable to ATA Inc. of RMB4.1 million in the prior year period, primarily due to increased share based compensation expense related to near share options that were issued in January 2017 and the RMB10 million expenditure related to the Tsinghua University partnership. Moving to Slide 9, we provide a supplemental chart of quarterly numbers adjusted for our share based compensation expense and following currency exchange gains and losses. Adjusted net loss attributable to ATA Inc. for the quarter ended 30, 2017, which exclude share based compensation expense and foreign currency exchange loss non-GAAP was RMB2.6 million compared to non-GAAP adjusted net income attributable to ATA Inc. of RMB5.2 million in the prior year period. Basic and diluted losses per common share attributable to ATA Inc. excluding share based compensation expense and foreign currency exchange loss non-GAAP for the quarter ended June 30, 2017 were both RMB0.2. Basic and diluted losses per ADS attributable to ATA Inc. excluding share based compensation expense and foreign currency exchange loss non-GAAP for the quarter ended June 30, 2017 were both RMB0.40 compared to non-GAAP basic and diluted earnings per ADS of RMB0.22 in the prior year period. We continue to be supported by free cash flow and a solid balance sheet, which we have highlighted on Slide 10. As if June 30, 2017, ATA's cash and cash equivalents were $22.7 million. Working capital was $35.1 million and total shareholders' equity was $47.1 million compared to $32.3 million, $28 million and $57 million respectively as of March 31, 2017. As shown on Slide 11, we expect net revenues for the three months ending October 30, 2017 will be between RMB68 million and RMB73 million. For the nine months ending December 31, 2017, ATA is reiterating its net revenue guidance range of between RMB490 million and RMB510 million. Please keep in mind that this guidance is based on our own internal projections and we will continue to evaluate our projections on an ongoing basis. With that, I will turn it over to Kevin, who will provide closing remarks on our growth strategy and outlook for the remainder of 2017 and beyond.

[Kevin Ma:]

Thank you, Amy. Our focus over this next seven months is continued to be accelerating the growth of core testing services business. With advanced share reported at last by the positive marketing environment I discussed at the start of the call. We are the member for regulatory bodies and educational institutions, opening up to idea of utilizing assessment [indiscernible] to increase the effectively and overall productivity. We continue to expand our relationships with longstanding clients by helping them deliver new test status and converging traditional test based exams to our computer-based platform. The Ministry of Human Resources and Social Security is a great example. We are going forward to have had their opportunity to work with this Ministry as our [indiscernible] 999 and are pleased without this mutually beneficial partnership has grown over the years. We are aimed to nurture all of our clients' relations in the same manner by offering best-in-class products and services. We also continue to look at growing our business over the long term, which is why we’re constantly looking to built partnerships that will position ATA for future success. We believe the relationships we have with [indiscernible] with ACT and Tsinghua University has a potential to lead to opportunities for us to ramp up growth in our testing services business. With that, operator, let’s open it up for questions.

[Kevin Ma:]

Thanks again to all of you for joining us. If anyone has questions for us, please feel free to reach out directly to us or our Investor Relations firm, the Equity Group. We’re looking forward to speaking with you all again during our next quarterly report. As always, we’d welcome any visitors to our office in Beijing. Thank you.

[Operator:]

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.